Container shipping has been established for 50 years. What does the next half-century hold for shipping lines and investors? It is expected that container volumes will rise to two to five times what they are today. This means the deployment larger ships than carriers are using currently. In fact, some envision that autonomous 50,000 TEU ships will plying the seas in 2067, alongside modular, drone-like floating containers.
Freight operators in 2067 will be closely connected through “data ecosystems,” and will have fully digitized customer interactions, and operating systems. It is forecast that three or four major container shipping companies will emerge as “digitally enabled independents with a strong customer orientation and innovative commercial practices, or small subsidiaries of tech giants blending the digital and the physical.” Freight forwarders as such will not survive the transformation, given that digitalization will obviate the need for intermediaries.
Integrated logistics providers could make freight forwarders irrelevant by mastering the complexity and the customer interface. – McKinsey Report
Changes in the global economy, reductions in income inequality, and the deployment of automation and robotics will result in a more dispersed manufacturing footprint. This is expected to contribute to the growth of short-haul intra-regional cargo traffic. Most notable, trade between Asia and Africa will be globally significant.
In order to be successful in the future, shipping companies must invest in digital technologies to differentiate their products, disintermediate value chains, improve customer service, raise productivity, and reduce costs. If they move faster than traditional logistics companies, technology companies may capture most of the value from customer relationships.
2017 is shaping up to be container shipping’s best year in nearly a decade. With freight rates on the rise and operating costs on the decline, container lines can expect a boost in shipping profits now and in the future. This outlook is inspiring more interest and investment in the industry.
There was a time when the cost to transport a container was so low that container lines were losing money with each voyage. This resulted in losses for a majority of container shipping leaders in 2016. Maersk Line, the industry’s leader, reported an annual loss of $376 million for 2016. In contrast, the company has forecast a shipping profit of one billion dollars for 2017.
In late June of 2017, the Shanghai Containerized Freight Index (SCFI) experienced a growth spurt, nearly doubling the SCFI rate from a year earlier (2016). Influenced by a new round of FAK (freight all kinds) rate hikes, and a disciplined intended implementation of peak season surcharges (PSS), spot rates from Asia to North Europe gained 15.1 percent; rising to $1,015 per TEU. The SCFI component for the United States’ West coast saw rates soar 26.2 percent to $1,378 per container. This has meant a return to profit for most container shippers.
The last couple of years (2016, 2017) have seen a flurry of mergers, alliances and partnerships between container shipping leaders. In the interest of survival, one time rivals have found common ground and reached partnership agreements. This has helped them to lower operating costs on major trade routes and reduce competition throughout the industry.
With volatility in the shipping sector seeming to be a thing of the past, institutional and private investment is returning to the industry. For one, there is an urgency to invest in containers to meet the rising demand for shipping services. In late July 2017, COSCO announced that it will invest more than two-hundred million dollars to purchase used shipping containers to add to its fleet. They are not the only ones, other shipping leaders are investing in containers too
Over the last decade, the container shipping sector has undergone a positive transformation. In doing so it has emerged as a stronger, more profitable industry and a better investment opportunity for private investors.